Opinion: Why Alibaba's investment in Ouya makes a lot of sense

I've seen a fair amount of discussion online about how Alibaba's rumored $10 million investement in Ouya was wasted, or at best foolish. But there's a bigger picture here -- and let's presume this story is true -- Alibaba isn't investing in a console, it's securing a store, and with that in mind, this is a very smart move for both parties.

First, let's look at the current state of Ouya -- on the negative side, we know the company has been struggling to move units of the physical console, and the games experienced only modest sales during 2013, at the peak of the console's activity. The company has recently moved away from the idea of Ouya as a dedicated console, to "Ouya Everywhere," selling Ouya's storefront and technology to whoever would like to run it. I will admit I was skeptical of this move, and thought it rather looked like a desperate last-ditch attempt to save the company.

On the positive side, the Ouya store has over 1,000 games on it, it streams video, many of its titles are free-to-play, and the technology basically works. And the company managed to partner with Xiaomi's set top boxes, which gave it a foothold in the region. And as the first of the big Android boxes, Ouya also still has a name that people in the industry know. That is definitely still worth something.

So what is it that Alibaba really wants in exchange for its $10 million, then? What Alibaba investing in, assuming this deal isa really going through? It's not the console -- it's the store. Alibaba thinks that SmartTVs -- televisions with built-in games and streaming software -- are going to be big in the coming years. They're already making decent waves in China.

So with this $10 million investment, Alibaba is essentially securing a store with a huge existing library of over 1,000 games, working streaming software, and a proven track record from a company with an actual name. That's potentially quite a lot of value for the money -- investing in Ouya's store and potentially getting exclusive licenses to the tech (we don't know the terms of the deal yet) is much cheaper than building something like that from the ground up.

On Ouya's side, if this goes through, a $10 million injection shows that its new strategy works, and that it can actually sell their new platform, proving naysayers like me wrong. This also makes it easier for Ouya to sell this platform in the future. Alibaba is one of the biggest players in the Chinese tech industry, and has the power to push pretty much anything through the labyrinthine government requirements necessary.

So in the end, this actually looks like quite a smart deal for both parties. Now, what would Ouya do with that money? I suspect a significant portion of that would be spent building out the platform even further, targeting the Chinese market, and catering to Alibaba in particular. Will this lead to future investment in games? If so, this deal could benefit developers as well.

I am pretty convinced that for the more casual markets out there, SmartTVs are going to be a pretty big deal -- so if this deal is real, Ouya has actually positioned itself quite well -- at least for the near future.